Estate Planning Tips and Tricks YOU Need to Know

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While it may be a depressing subject, these simple tips will help you ensure your wishes are honoured throughout the estate planning process. We will discuss the estate planning process, the distribution of assets, and we will explain what taxes are applicable when passing on assets.

What assets make up an estate

Firstly, we need to clarify what assets make up an estate. Estate assets can include things such as real property, shares, cash and interests in assets owned by the deceased or, held as tenants in common. What may be surprising is the number of assets that do not automatically become part of a person’s estate. These assets are generally distributed independently of the person’s will.

These include:
  • Assets held in joint names
  • Superannuation assets and life insurance inside superannuation
  • Life insurance policies outside of superannuation
  • Assets of companies
  • Assets held in a family trust

Tip number 1

Any assets held in joint names do not become part of your estate. Instead, your share of the asset is directly passed onto the surviving joint owner in the event of your death. Depending on your circumstances and estate planning wishes, it may be appropriate to hold some of your significant assets jointly. This ensures that the other owner will automatically receive those assets and helps to speed up the asset distribution process. Holding bank accounts jointly will prevent them from getting frozen.

Who can receive superannuation death benefits

Eligible recipients of superannuation death benefits are governed by the Superannuation Industry (Supervision) Act 1993 (SISA Act). The SIS Act limits payment of superannuation death benefits to either:

  • the member’s legal personal representative (with the death benefits forming part of the estate and distributed through the will); or
  • one or more of the member’s dependants. A dependant includes a spouse (married or de facto), children, financial dependants or any person whom the member has an interdependency relationship with.

Fortunately, there are several types of nominations available inside of superannuation.

Types of super death benefit nominations

There are four types of nominations available:

·         No nomination

When you have no nomination the trustee of the superannuation has to determine where your benefits are to be distributed. This leaves full control to the trustee as to whom will receive your super.

·         Non-binding nomination (also known as a preferred nomination)

You provide the trustee with a nomination as to how you would prefer funds to be distributed. However, the trustee still retains full control of the distribution and allows other ‘potential’ recipients to make a claim on your funds. In this case, the trustee may ask all potential recipients whether they would like to make a claim (or contest). The trustees are then obligated to assess whether they are entitled to a portion of your superannuation benefits. This can be a drawn out process and may delay the nominated beneficiary from receiving the money they need urgently.

·         Binding death benefit nomination

The trustee has no say in where the member’s superannuation benefits are directed and they must follow the binding nomination in place. This provides the greatest control to the member to ensure their benefits are passed exactly as they wished.

·         Reversionary nomination

Reversionary beneficiaries can only be nominated on income streams. On death, income payments automatically continue to the beneficiary. If the reversionary beneficiary’s circumstances change, they can still elect to receive all or part of the death benefit as a lump sum. Importantly, only certain types of beneficiaries can continue an income stream.

 

Tip number 2

Use a binding death benefit nomination to your beneficiaries where it suits. Typically, valid binding nominations are the most time efficient way to distribute assets held in superannuation. This is because they can’t be contested[1].

Taxation of superannuation death benefits

When superannuation or insurance benefits are paid to a “tax” dependant, all lump sums will be tax-free. A “tax” dependant is a dependant under the Income Tax Assessment Act 1997. Tax dependants can be a spouse or a child under the age of 18. They can also be a person who is financially dependent or interdependent upon yourself. If the insurance or superannuation is not paid to a tax dependant (for example, an independent adult child), then tax is applicable. Fortunately, in the case of superannuation, it is not the entire balance of the fund. The taxable component which is determined by how the funds were contributed and whether insurance benefits were paid, is the only component subject to tax.

Your death benefits can, in some cases, be paid as a pension to the beneficiary nominated. If you are aged 60 or over at the time of death, then pension payments to your beneficiary will be tax exempt. However, your pension will be taxed at the recipient’s marginal tax rate (with a 15% tax offset) until your beneficiary reaches age 60, if you are under age 60 at the time of death. This is also the case if the income stream is being handed on to a child who is under 18 years

old, 18-25 years old and financially dependent on you, or disabled.

Please note this Document contains information that is general in nature. It does not consider the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

GEM Planning Pty Ltd ABN 15 112 148 366 is an Authorised Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 AFS License No. 232706

 

 

 

[1] Except in New South Wales.

 

10 thoughts on “Estate Planning Tips and Tricks YOU Need to Know

  1. Nice tips! My father came to me and asked for help with his estate planning and I realized that I have no idea where we can start from. I did not know that assets held in a family trust also make up an estate! Thanks for the information, it has helped us a lot, and I hope that a specialist who will guide us through the process of real estate planning will do the same.

  2. Thanks for explaining that assets held in joint names do not become part of an estate. Estate planning is something that my family has been thinking of doing with my grandparents, and we would like to make sure it is done right. I think that getting help from a lawyer in estate planning would be a good way to go about doing it correctly.

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